Regulation - Sales

Front 1

Sale of Goods Under the UCC

Back 1

1. Applies exclusively to personal property
2. Consideration
3. Consideration is not required to modify a sale of goods contract
4. Example: Buyer asks for a price reduction and seller agrees
• This modification is binding even without consideration
5. Firm offers do not require consideration
6. Option contracts require consideration

Front 2

Terms of Sale

Back 2

1. Mailbox rule applies to sales of goods
2. In sales of goods, terms may be changed
3. Changes in terms
a. Are not counter offer
b. Usually becomes part of the contract, unless clearly states no changes allowed
4. If an exam question states no changes allowed, then any change, major or minor, results in no
contract (contract is rejected)
5. If the contract is silent on changes
a. Minor change = Rejection
b. Major change = Part of the contract

Front 3

Statute of Frauds

Back 3

1. Sale of goods $500 or more must be in writing
2. Must be signed by one party; the party to be charged
3. Writing must include major terms; does not have to include all terms
4. If missing terms, the court will create:
a. Price → Reasonable price
b. Time → Reasonable time
c. Place → Seller’s place of business

Front 4

Exceptions to Writing Under Statute of Frauds (Sale of goods, even if $500 or more)

Back 4

1. Specially manufactured goods
• Example: specialty calendars
2. Part performance rule (part payment or receipt of goods)
• Contract is enforceable up to part payment or part received and accepted
3. Admission in court
4. Confirming letter rule (merchants)
5. Under the UCC confirming letter rule, if both parties are merchants, and one party sends a
confirmation to the other, and the other does not object to it, the non-signer becomes liable
after 10 days
6. The confirming letter rule is also called the two merchant rule]Exceptions to Statue of Frauds (SPAM)
S Specifically manufactured goods
P Part payment or receipt of goods (part of performance)
A Admission in court
M Merchant’s confirming letter

Front 5

Warranty Law

Back 5

1. Definition: Statement of fact, not opinion made by the seller and relied on by the buyer
2. Two kinds of warranties:
a. Expressed: Example is “This suit is 100% wool.”
(1) Must form the basis of the bargain
(2) The buyer has relied on seller’s statement of fact
(3) Sale by sample: All goods must conform to the sample
(4) Sale by description: All goods must conform to the description
b. Implied
(1) Merchantability means goods are fit and safe for normal use
• The only one who can make this warranty is a merchant
(2) Fitness for a Particular Purpose: Buyer relies on seller to select goods for a particular
purpose
• Seller can be either a merchant or a non-merchant

Front 6

Warranties

Back 6

1. Excluding warranties of fitness or merchantability
a. By a writing that is conspicuous
b. By selling goods “as is,” “with all faults,” or “slightly irregular”
2. Warranty of title
a. Every seller represents they have title unless they exclude it
b. The only way to exclude warranty of title is with specific language such as:
(1) There is no warranty of title
(2) Selling goods with all title or rights the seller has, if any
3. Warranty against infringement: Seller implies that goods do not infringe on any products
4. Warranty against encumbrances: Seller implies that there are no unstated liens on the
property

Front 7

Product Liability

Back 7

1. Old rule: Only the original buyer could sue the original seller
2. New rule (UCC)
a. Purchasers, members of family, members of household, or guests of home can sue
anyone in the chain of title for breach of warranty of merchantability
b. Privity not required (privity is a contract between two parties)
3. Negligence: Anyone injured by negligence can always sue the negligent seller
4. Elements of negligence:
• Duty
• Breach
• Harm
• Cause injury as a direct result of seller’s negligence
5. Strict liability: Anyone harmed by using dangerous or defective products as intended can sue
a. Anyone in the chain of selling the goods
b. You do not have to prove negligence or privity (contract)

Front 8

Title & Risk of Loss (ROL)

Back 8

1. Shipping contract: Title and ROL pass at shipping point
2. Destination contract: Title and ROL pass at destination point
3. If not clear, it is understood to be at shipping point
4. No shipping terms involved
a. Merchant sellers: buyer bears risk of loss upon physical receipt of goods
b. Non-merchant sellers: buyer bears risk of loss on tender of delivery
5. Tender of delivery—seller indicates goods are available for pick-up
a. Risk of loss for non-conforming goods remains with the seller
b. Title passes when the buyer receives the correct goods
6. Generally, title and risk of loss stay together
7. Shipping terms
a. FOB shipping point: Title and risk of loss pass at shipping point
b. FOB destination: Title and risk of loss pass at destination
c. Free Along Side (FAS): Title and risk of loss pass once goods are delivered to carrier
d. Cash on Delivery (COD): Buyer receives goods after payment
• Cannot inspect goods until after payment
e. Ex ship: Title and risk of loss pass when goods are unloaded at destination
f. Sale on approval: Title and risk of loss remain with the seller until buyer’s approval
• For consumer use
g. Sale or return: Title and risk of loss pass at receipt of buyer
• For resale purposes

Front 9

Power to Transfer Title

Back 9

1. A thief cannot transfer title, except for commercial and bearer paper
2. Cases where a good faith purchaser (GFP) receives title:
a. Goods remaining in seller’s possession after sale and are sold to a GFP
b. Entrustment: Rightful owner leaves goods with merchant who deals in those goods
and the merchant sells to a GFP
c. Fraud by impersonation: Imposter receives delivery of goods and then sells to a GFP
d. Seller of goods purchased the goods with a bad check and then sells the goods to a
GFP

Front 10

Remedies for Buyers and Sellers

Back 10

1. Buyer who receives wrong goods can accept all, none or some of the goods
2. With sales of goods, even a minor defect means the goods do not conform to the contract
a. For non-conforming goods, the seller has the right to cure; if seller notifies and sends
buyer new goods within reasonable time, the buyer must accept
b. Example: Name misspelled on one golf club
(1) Buyer has the right to reject the goods (non-conforming)
(2) Seller has the right to cure
3. Buyer’s right to cover: If seller is unable to ship goods, the buyer has the right to substitute
goods (purchase similar goods elsewhere)
4. Even if goods are not unique, the buyer can get specific performance if the buyer cannot
the goods elsewhere
5. Adequate assurance of performance
a. Either party can demand the other party provide some assurance that the party
to continue to perform the contract
b. If the seller questions payment, the buyer must show certified financial statements
(good financial standing)
6. Identification of goods
a. Once the seller identifies and sets apart the buyer’s goods, the buyer then has insurable
interest in the goods
b. The buyer has the right to demand these goods from an insolvent seller
c. If the buyer becomes insolvent, the seller has the right to demand cash

Front 11

Statute of Limitations

Back 11

1. For sales contracts: 4 years
2. Can be reduced to one year by agreement of both parties
3. Cannot be extended
4. Begins to run on date of breach

Front 12

Sales Review

Back 12

1. Statute of frauds and exceptions where writing is not required
2. Confirming letter rule
3. Firm offer
4. Mailbox rule—contracts and sales
5. Product liability
6. Title & risk of loss